Husband Repays Almost $1 Million to Bounce Back from Bankruptcy – Yet Ordered to Keep Supporting Wife

by familyllb on October 10, 2013

Husband Repays Almost $1 Million to Bounce Back from Bankruptcy – Yet Ordered to Keep Supporting Wife

A few weeks ago I told you about a case called Brothers v. LeBlanc, 2013 ONSC 4073, http://canlii.ca/t/fzcm6 where a man in a 20-year common-law marriage was ordered to honour his promise under a separation agreement to pay certain large sum of money to his wife, even though he unexpectedly went bankrupt for other reasons.

In another recent case called Burger v. Burger, the court likewise confirmed a husband’s obligation to pay monthly spousal support to his wife under an agreement signed in 2000, despite his being on the brink of bankruptcy due to debts of nearly $1 million to creditors and for unpaid taxes.

To backtrack a little: The husband had been working for 31 years as a manager at a KFC franchise when in 1993 he decided with a business partner to open a sports store called “Slopes N’ Stokes”. But due to what he said was “ignorance”, he failed to make government business tax and personal income tax remittances for more than a decade. He ignored the numerous government notices and warnings that he regularly received by mail.

Fast-forward to 2003: The husband’s business was assessed by the government, and was declared as owing over $600,000 in provincial sales tax, and another $550,000 in federal sales tax. The business also owed money to various suppliers and creditors. Although the husband’s business partner promptly declared bankruptcy, the husband resisted doing so: partly this was “out of pride”, but it was also because he was confident that with the existing clientele and inventory he could still make the business work.

Indeed, he showed admirable resolve: He assumed all the business debt personally, and under a repayment proposal prepared with the help of a bankruptcy trustee, he repaid $50,000 up-front, then $50,000 a month for five months, then $20,000 per month for another 28 months until all the creditors were paid. He did so with the help of an interest-free and flexible-repayment loan of $200,000 from his new girlfriend. He was eventually discharged from bankruptcy, and afterward continued on with the business even though it still wasn’t making a profit.

The court reviewed these circumstances in the context of determining whether to relieve the husband of his obligations under the separation agreement he had signed with his wife in 2000. The husband claimed he could no longer afford to pay spousal support, and that in any case he had paid it long enough despite the difficult financial circumstances he had subsequently faced and overcome.

The court disagreed. It found that there had been no “material change” to the level required by the provisions of the Family Law Act that allow for a variation of a separation agreement in the husband’s favour.
This is because at the time the agreement was entered into in 2000, the husband was actually well aware that he was in debt to his creditors and had not been paying his business-related and personal income taxes since 1993. Since he knew all these things at the time, then he cannot now say that there has subsequently been a “material change”.

Furthermore, his financial industriousness in the face of bankruptcy has actually left him in a better position now, since his current total outstanding debts are actually lower than they were in 2000. The $200,000 he owed to the new girlfriend was interest-free, and she was not pressing for repayment. His choice to continue operating a business he conceded was still not profitable not a reason to relieve him of his support obligations to his former spouse.

The husband’s application to vary based on a “material change in circumstances” was therefore denied. (It was, however, changed with the wife’s consent for other reasons, including an improvement in her overall financial situation).

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com.

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About FamilyLLB

FamilyLLB is written by Russell Alexander, a divorce and family law lawyer based in Ontario, Canada. For nearly twenty years, Russell's firm has helped clients who are going through a separation or divorce. You can find more of Russell's online commentary via Twitter, Google+, LinkedIn, or on the firm's Facebook page.